Unformatted text preview: wage costs. 2.Bad debt costs. 3.Delayed receipt of cash.
4 5 6 7 Allowance Method
The allowance method follows a two-step process, described below: 1.Make an end-of-period adjustment to record the estimated bad debts in the period credit sales occur. 2.Remove ("write off") specific customer balances when they are known to be uncollectible. 8 1. Adjust for Estimated Bad Debts 9 10 11 12 Percentage of Credit Sales Method
The percentage of credit sales method estimates bad debt expense by multiplying the historical percentage of bad debt losses by the current period's credit sales.
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